THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

NIC ROBERTSON, HOST: October 18th, after years in exile, former Prime Minister, Benazir Bhutto, returns to Pakistan, to run for president. Within hours Bhutto was targeted in a double suicide bombing. She escapes but 140 people are killed. November 3rd, President Musharraf declares a state of emergency, suspends the constitution and declares martial law. Under heavy pressure, Musharraf steps down as head of the army, so he can run for another term as president.

Today, less than two weeks before the scheduled election, another terror attack. Benazir Bhutto is assassinated at a campaign rally plunging Pakistan into uncertainty. It's the latest dramatic twist in the story of Pakistan, considered by Washington to be a key ally in the war on terror. But is Pakistan winning its part of that war?

Come with me, Nic Robertson, on my journalistic journey of the last two years, beyond Pakistani politics. Reporting into how the country has become Terror Central.

London, July 7th, 2005. The country is in shock. It's the deadliest attack on British soil since World War II. Four British- born suicide bombers kill 52 commuters. Three of the attackers are of Pakistani descent. 22-year-old Shezad Tanweer, is one of them. Born in the U.K. Tanweer's family lived in Leeds, a sprawling city in the north of England. His father ran a popular fish and chips shop not far from their home. At school, Tanweer made a name for himself as an outstanding sportsman, excelling in cricket and soccer.

So, how could a seemingly normal boy with good parents become a suicide bomber? Just a few months before the bombings, this security photograph was taken at a Pakistani airport.

Pakistan is where I begin. One of the places Tanweer visited when he came back, according to intelligence sources, was this Madrassa, religious school. Although, inside, officials deny he was here.

SHEZAD TANWEER: You are directly responsible for the wars in Pakistan and Afghanistan and Iraq to this day.

ROBERTSON: A year after the London bombings, Al-Qaeda released Tanweer's suicide message. On it, Al-Qaeda's number two, Ayman Al Zawahiri, reveals that after going to a Madrassa, Tanweer went to one of their camps, was trained in explosives and terror. Then sent back to Britain to complete the mission.

The implication is clear -- Al-Qaeda is alive, well and recruiting in Pakistan's religious schools.

Translator: Shezad Tanweer, may Allah have mercy upon him, was diligent in night prayers and infatuated with the Koran, and would recite it often.

ROBERTSON: My next stop, a secret location. I can't tell you where in order to protect my source. I've come to meet a man who used to live in Pakistan. He tells me he used to spy on Al-Qaeda but was ratted out. He fears for his life so much now, I can't even tell you which country I'm in, never mind which city.

In Pakistan, he had a prominent position, with strong connections to the country's intelligence service. What he tells me contradicts Pakistan's stated policy; to hunt down Al-Qaeda. He says that, back in 2006, Al-Qaeda's number two, Ayman Al Zawahiri, was informed ahead of time of a U.S. plan to assassinate him.

Did Ayman Al Zawahiri know this attack was coming? Had he been tipped off?

UNIDENTIFIED SOURCE: Yes.

ROBERTSON: He had been tipped off?

UNIDENTIFIED SOURCE: Yes.

ROBERTSON: who tipped him off?

UNIDENTIFIED SOURCE: I.S.I.

ROBERTSON: Pakistani intelligence tipped off Ayman Al Zawahiri?

UNIDENTIFIED SOURCE: Because I've told you that they're playing a double game.

ROBERTSON: That's incredible.

A double game that also allowed Tanweer to train in Pakistan for the London bombings. I return to Pakistan in September 2006, to the village where Tanweer's parents lived.

Hello. Is there a Mr. Tanweer here?

A woman answers. For a few moments, it looks like she might talk. She is angry. She seems to blame us for Tanweer's death.

He came here before the attack. And I just want to learn something.

Next, I cross the street to the mosque, where Tanweer prayed. After the London bombings, villagers held prayers here in his honor. I asked if they knew Tanweer was plotting the suicide attack.

Why when he came back didn't people here try to talk him out of it? They all deny meeting him or going to his memorial service. After the interview, I found out that somebody was in the back of the crowd saying, are we fools? Would we tell them anything? And I discovered that many of the people here, although they denied it, attended Tanweer's funeral prayers.

I've also learned that they told Pakistani reporters they support his attack. That attitude is a shocking discovery. Pakistan and its president, General Pervez Musharraf, are supposed to be one of the United States' closest allies in the global war on terror.

Musharraf, a military dictator, took power in a bloodless coup in 1999. Despite backing Al-Qaeda's allies, the Taliban and Afghanistan, he was one of the first people President Bush turned to after 9/11.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: President Musharraf made a bold decision for his people and for peace after September the 11th, when Pakistan chose to fight the terrorists.

ROBERTSON: When the U.S. invaded Afghanistan, many in Al-Qaeda and the Taliban fled across the border, into Pakistan.

But now, Musharraf claims the U.S. bullied him into joining the war on terror. Leaving no doubt what his country risked if he refused to cooperate. He recalled what he described as a shockingly bare- faced threat from U.S. Deputy Secretary of State, Richard Armitage.

PERVEZ MUSHARRAF, PRESIDENT OF PAKISTAN: That we will be prepared to go back to Stone Age.

ROBERTSON: With billions of U.S. Dollars as an incentive, Musharraf's army has captured some Al-Qaeda leaders in Pakistan. Yet, western intelligence agencies tell us that Osama Bin Laden and his deputy, Ayman Al Zawahiri, are still inside Pakistan; or at the very least, slipping in and out.

As I follow Shezad Tanweer's trail, those claims seem to be confirmed. That's where Al-Qaeda recruited him, in a Pakistani Madrassa. When we come back, inside a Madrassa; religious schools or incubators of hate?

(COMMERCIAL BREAK)

ROBERTSON: It's late at night in Lahore, Pakistan. Children, some as young as 5 years old, are memorizing the Koran. I've come to this Madrassa, a religious school, because suicide bomber, Shezad Tanweer reportedly stayed here, shortly before the London bombings known as 7/7.

Madrassas like this one can help us better understand what turns some young men like Tanweer into killers. These children begin their studies at about 6:00 in the morning. They get a break for breakfast at around 8:00 a.m. Then they go back to their books. They get a break for lunch. Then studying again all afternoon. A long break in the evening. Then, back to their books again. There are thousands of Madrassas like this one in Pakistan. And hundreds of thousands of children attend them. That worries former Pakistani police officer, Hassan Abbas.

HASSAN ABBAS, FORMER PAKISTANI POLICE OFFICER: According to all accounts, about 10 to 15 persons are Madrassistas (ph) in Pakistan, are involved in militancy, support of Taliban, in terrorism, religious extremism.

ROBERTSON: Abbas, a fellow at Harvard University, and an expert on Madrassas, has no doubt some turn students into terrorists.

ABBAS: Hatred for minorities, hatred for all things un-Islamic, are being entrenched, being pumped into the minds of the kids every other day.

ROBERTSON: This man, Mullah Abdul Rashid Ghazi (ph) ran some of the largest Madrassas in Pakistan. And not just for boys; for girls, too.

He met Osama Bin Laden, years ago in Afghanistan. And said his beliefs are ideologically close to the world's most-wanted terrorist. Ghazi preached that jihad, war with one's self and against Islam's enemies is a basic tenet of the Koran.

MULLAH ABDUL RASHID GHAZI: We've been asked by the government many times that you should stop teaching jihad. We tell them that we can't stop it because we cannot make any amendment in Islam.

ROBERTSON: For decades, Pakistan's Madrassas have been teaching Islamic holy warriors. Ghazi told his students that America's war on terror is a campaign against all Muslims.

GHAZI: If you talk about Afghanistan, yes we say that American army can be attacked in Afghanistan and in Iraq, American army because they're aggressive.

ROBERTSON: Often, the teaching here was little more than indoctrination. It took this student, Jabba Ismael (ph), four years to memorize the Koran. It was especially difficult because he doesn't understand a word of Arabic. Ismael's an American, from Lodi, California, and is in trouble.

I'm visiting him because his cousin told the FBI that Ismael had not only studied the Koran in a Madrassa, but had also attended a terror training camp.

JABBA ISMAEL: I just came here for reason. That reason is to memorize the Koran. I'm done with that reason. Now, I want to go back.

ROBERTSON: But, for now, that is impossible. Ismael is on a U.S. government no-fly list.

ISMAEL: I don't think they believe me.

ROBERTSON: Why not?

ISMAEL: They say I have to do a lie-detector test. I was thinking, I was born in the United States why do I have to take a lie- detector test just to enter my own country?

ROBERTSON: Ismael's cousin was convicted in a U.S. Court, for attending a terror training camp in Pakistan. Ismael denies he followed his cousin's lead.

ISMAEL: My cousin Hamid, I guess he got frustrated with him. So, he made up some lies, you know.

ABBAS: He's talking about Hamid here.

ROBERTSON: Hassan Abbas believes the case against Ismael's cousin is proof that Madrassas and terrorism are linked. And testified about literature found in Ismael's cousin's house.

ABBAS: Those were all about one issue. That was religious extremism, militancy, terrorist activity.

ROBERTSON: After 7/7, the London terror attacks 2005, British Prime Minister, Tony Blair, saw a similar link. Bomber Shezad Tanweer had gone from a Madrassa to terror training.

Blair called on President Musharraf to crack down on Madrassas. Former Pakistani interior minister, Aitazes Ahsan, who two decades ago, tried to rein in the Madrassas calls Musharraf's response lame.

AITAZES AHSAN, FORMER PAKISTAN INTERIOR MINISTER: Entirely half- hearted initiative. As I said, it takes a step forward and a step back.

ROBERTSON: As part of the post-7/7 crackdown, Musharraf sent troops to Mullah Ghazi's Madrassa, in the heart of the capital.

GHAZI: It was just to please them. But he couldn't do it.

ROBERTSON: Just to please who?

GHAZI: To please America. Please Blair. Because at that time, you know, it was after 7/7.

ROBERTSON: But Musharraf's half-hearted crackdown, only angered Ghazi's students. They took to the streets, closing down video stores demanding Islamic law. And Ghazi's burqa-clad female students, recently shut down on alleged brothel and a library.

I met with Ghazi twice. Both times, he accused Musharraf of failing Pakistan.

GHAZI: He's an agent of the United States. He's behaving like an agent. I mean, although he says that Pakistan first. But he doesn't mean it. He is doing all kind of -- I mean, things against the Pakistanis, just to please America. Although, with the passage of time, I have realized that he is not sincere to even America. ROBERTSON: In July of 2007, Musharraf's army stormed the red mosque in Islamabad. Ghazi was killed, along with almost 100 students; many of them well-armed, radical Islamists. Soldiers were killed, too. It had taken years. But Musharraf had finally moved decisively against this Madrassa.

In a rare video released, the attack invoked a death threat from Osama Bin Laden, accusing Musharraf of caving to U.S. pressure. Ghazi wasn't alone in believing that General Musharraf is playing both sides in the war on terror with the apparent aim of staying in power.

AHSAN: When he goes to the United States, he convinces the Americans there, that "If I do not remain, the mullahs will take over." And he comes back to Pakistan. And he convinces the mullahs that "If I do not remain, the Americans will come and take over."

MUSHARRAF: We should have elections --

ROBERTSON: We wanted to ask president Musharraf about accusations of playing a double-game. But he declined our interview requests. For the time being, Madrassas continue to be a source of instability here.

But as we'll soon find out, the bigger problem facing the U.S. is the Taliban, and how it's helping turn Pakistan into Terror Central.

(COMMERCIAL BREAK)

ROBERTSON: Watch as this man threatens our cameraman. He and his friends don't want to be filmed. It's un-Islamic, they say. Off camera, they tell us they are Afghan Taliban fighters.

But these streets they brazenly stroll are not in Afghanistan. This is Quetta, a major Pakistani city, close to the Afghan border. Normally off limits to journalists, I was given a rare, government- escorted tour, in April 2007.

It's after 11:00 at night. And the police are taking us on patrol through Pashtunabbad, it's an area that people in the city have told us is where the Taliban lived. What the police want to show us is that they don't see Taliban. Don't have problems from them here.

But the police don't patrol these back alleys and can see what the Taliban do there is beyond their control. Pakistani journalist, Amir Mir, an outspoken critic of President Pervez Musharraf, moves around Quetta freely and sees much more than I'm allowed.

AMIR MIR, PAKISTAN JOURNALIST: Well, this town is the sanctuary for the Taliban. Almost the entire leadership of Taliban is hiding in Quetta.

ROBERTSON: In Pakistan?

MIR: In Pakistan.

TAHIO KHOSA, BALOCHISTAN INSPECTOR GENERAL: There is absolutely no truth in this thing that there is some sort of hub of Taliban leadership or Taliban is taking it as a sanctuary. Staying here, planning their movements.

ROBERTSON: But all along the border north of Quetta, U.S. troops are finding the Taliban are getting stronger. So strong, Musharraf cut a deal, rather than confront them in Pakistan. He agreed not to hunt them down, in return for a cease-fire.

MUSHARRAF: Let's isolate the Taliban with the people -- take the people on your side. Otherwise, the most disastrous thing which would happen now -- and it is happening on the Afghan side, I'm trying to prevent it on the Pakistan side, is to convert Taliban movement into a people's movement.

ROBERTSON: So, where we're walking up to right now, we're looking already into Afghanistan here just a few hundred meters away?

LT. GENERAL AHSAN AZHAR HAYAT, PAKISTAN ARMY: That's right.

ROBERTSON: To learn more, I head to Pakistan's tribal border area. The general in charge here, tells me the Taliban he targets are home-grown Pakistani, not Afghan Taliban. And it's costing his soldiers dearly. Hundreds have been killed.

HAYAT: At night, they report somebody's on the road. And later on, they were just blasted off from the remote control and all that.

ROBERTSON: While we are here, we discover you can buy the latest Taliban videos of just such attacks in local markets. They're reminiscent of Iraqi insurgent propaganda. Even their terror tactics, like IEDs and now beheadings, seem honed in Iraq.

HAYAT: They also started resorting to -- which was a new phenomenon of this area -- to the suicide killing.

ROBERTSON: Musharraf's compromise deal left tribes and the Taliban to police themselves while the army stuck to bases and border check posts.

Thank you again. Thank you.

From my travels and considerations, I cab see that the deal was made from a position of weakness. It had little to do with protecting U.S. troops in Afghanistan. Musharraf was trying to save his own soldiers, who keep the support of his army.

MUSHARRAF: We put a bottom line when we reached an agreement. There will be no Taliban activity. There will be no Al-Qaeda activity on our side or across the border. And they signed. And they've agreed to this.

ROBERTSON: But a U.S. national intelligence estimate report, issued in the summer of 2007, says that policy failed. It says the Taliban's ally, Al-Qaeda, has used the deal to regroup in the border region and is now, a growing threat to the U.S.

CNN caught up with the then-chairman of the U.S. Joint chiefs of staff, to ask him his take on Musharraf's deal.

GENERAL PETER PACE, FORMER CHAIRMAN JOINT CHIEFS OF STAFF: A very tough set of issues he's working with. They tried the agreement process. That didn't work.

ROBERTSON: Al-Qaeda and its allies have become so strong, that after Musharraf's crackdown on the red mosque in July, the Taliban broke the deal; and in the months afterwards killed hundreds of people, in scores of attacks across the country.

Musharraf's former top general, Ali Muhammad Aurakzai, who negotiated the deal, denies the government made concessions to the Taliban.

LT. GENERAL. ALI MUHAMMAD AURAKZAI, GOVERNOR, NORTH WAZIRISTAN: We have not struck a deal with the Taliban. It is with all the tribes of North Waziristan Agency which includes Taliban also because they are living there. They're the people of that area.

ROBERTSON: Aurakzai told me that the U.S.-led war on terror was no longer working in Pakistan's interests. And that's why it had made the deal.

AURAKZAI: We have been following a certain strategy. This has been in place since December 2001. We need to review this policy or this strategy. We need to see the gains and the losses and where we are headed.

ROBERTSON: I traveled to Afghanistan, just after the deal was cut eight miles across the border where U.S. troops were feeling the impact. Since the new deal was made, cross-border attacks have soared.

If you want to see what the Taliban are attacking, just check out the remnants of this school. The U.S. military had just helped getting fund and get it built. There are one, two, three, four, four classrooms here eight classrooms in total. The very night it was completed, the Taliban blew it up.

UNIDENTIFIED SOLDIER: Once we heard the actual explosives were placed into it, it took the wind out of all of our sails because we had high hopes for this place.

ROBERTSON: High hopes because winning the war on terror, means showing Afghans that Americans are here to help and provide security. But for now, Taliban intimidation is winning.

The villagers haven't said really anything to point it out. You know, they still live in a lot of fear.

ROBERTSON: For these troops, what happens in Pakistan could not be more important. The success of their mission and their lives depend on it.

Worse, Bin Laden is still on the loose. Why the $25 million reward is not enough to capture the world's most-wanted man, when we return.

Now, in the news, the deadly tiger attack at the San Francisco Zoo. According to a local newspaper police are now investigating whether the tiger was taunted by the victims. One young man was killed. Two others were injured.

Also zoo officials today said that a wall in the exhibit is nearly four feet shorter than industry standards. An inspector visiting the zoo three years ago never mentioned the shortcoming.

A Seattle area woman and her boyfriend have confessed to fatally shooting six members of the woman's family on Christmas Eve. Police said the couple would be arraigned next week. The police have not yet revealed their motives.

Finally the latest in a story that dominated the news all day; the assassination of Benazir Bhutto. Just hours from now, the former prime minister of Pakistan will be buried. Ms. Bhutto who recently returned from exile to run for office again was killed at a campaign rally. At least 22 others died, as well.

It's still unclear who is to blame. But tonight, the FBI and the Department of Homeland Security, are looking into an unconfirmed claim of responsibility by Al-Qaeda. Bhutto's assassination is the latest dramatic twist in the story Pakistan, considered a key ally in the war on terror.

For the last two years, CNN's Nic Robertson has extensively reported on Pakistan's efforts against Islamist extremism, for his documentary, "Pakistan, Terror Central," which continues right now.

It was September 2002. Commander Malik Mohammed Halid directed the raid triggered by U.S. intelligence gathering. As he explains to me, the operation was not going as planned. Abu Zubaida was getting away here.

Abu Zubaida was here? He was here? And that's quite a big jump.

Commander Halid rushed to the roof. Abu Zubaidahad was hit by gunfire. Commander Halid had him by the neck. As he recounts the capture, he seems to be almost remorseful although he denies it. In Pakistan, many harbor deep sympathy for Al-Qaeda.

Okay. So, you've got to ask yourself, if they can catch Abu Zubaida on this roof four years ago, why haven't they been able to capture Osama Bin Laden since then? I asked former intelligence chief, Hamid Gul. Pakistanis, he explains, favor Bin Laden over the west. And he says they won't sell him out, even for millions of dollars.

HAMID GUL, FORMER PAKISTAN INTELLIGENCE CHIEF: That's just money. You can't get the kind of information you are looking for.

ROBERTSON: But critics in Pakistan say there's another, equally significant reason. They say President Musharraf has done little to convince his countrymen to help in the hunt.

GUL: He created a fear. A ball of fear was cast over Pakistan after 9/11 that he had no choice. He didn't have his heart in it. But he had no choice. That was the message that was sold to people of Pakistan.

ROBERTSON: But that's not the image Musharraf wants the west to see. In Musharraf's autobiography, he highlights the two attacks on his life, proof, he says, of his commitment to the war on terror.

MUSHARRAF: Through this book, I'll project the reality of Pakistan. And I project the truth of all issues of concern to the world as Pakistan sees it. Otherwise, the world sees everything, less Pakistan's point of view. This book will now tell the world what Pakistan stands for.

ROBERTSON: Musharraf's top officials heap scorn on suggestions they are falling short on helping the United States.

AURAKZAI: When we hear this expression, repeatedly, that Pakistan is not doing enough, it is very, very painful. I mean, it hurts us. And then, look at the casualties that we've suffered.

ROBERTSON: But Mullah Ghazi told me, before he was killed in July 2007, something very different. How easy it is for a wanted man to move freely in Pakistan. In fact, Ghazi, accused of plotting to blow up government buildings and the U.S. embassy, practically hid in plain sight, for months, in Pakistan's capital evading capture until the charges were dropped.

GHAZI: There was a time in 2004, when the whole army was after me. They were searching me. And I was living in Islamabad. They were searching everywhere in Pakistan. And I was living in one small house, in Islamabad.

And I lost all contacts, my mobile, everything. I have one man who was going and taking my messages. I released my cassette.

ROBERTSON: If this sounds familiar, it's because it is. Osama Bin Laden continues to release his audio messages, as the U.S. continues to hunt.

Journalist Amir Mir, an outspoken critic of Musharraf says the reason Al-Qaeda's leaders are on the loose, is obvious. Musharraf is letting it happen. MIR: As long as Osama's at large, Zawahiri is at large, Musharraf will continue to rule this country with the full blessings of the U.S.

ROBERTSON: So, September 2006, I went to the Afghan/Pakistan border, to ask the general in charge about the hunt for bin laden.

Do you think if Osama Bin Laden were here today, the people around here would tell you?

GENERAL AZHAR: I would hope so, certainly.

ROBERTSON: I'm less than convinced. I know and the general knows the tribes here are independent, devoutly religious, and natural allies of Bin Laden. And any "self-policing" of the border is a failure.

Pakistan would much rather have these troops on the other side of the country. Ready to fight archenemy, India. When I talk with Governor Aurakzai, I realized just how deeply that was felt. Aurakzai was the general Musharraf sent to the boarder to catch Bin Laden as he fled the infamous battle of Tora Bora in December 2001.

At the same time, India's military was massing on Pakistan's other border. A threat he took so seriously, he questioned the wisdom of supporting the war on terror.

AURAKZAI: On the one hand, the existence and security of Pakistan was being threatened on the other hand, we were coalition partners. And we had a mission to achieve here.

ROBERTSON: Which raises the question -- what is Musharraf's real agenda? Solidifying his hold on power? Fighting his old enemy, India? Or fighting America's war on terror? Some answers when we return.

(COMMERCIAL BREAK)

ROBERTSON: Pakistani state TV, has video of a sick man in hospital. A government minister greets him. Floral tributes pile up. The man, A.Q. Khan, the father of Pakistan's nuclear bomb; a national hero.

A successful underground nuclear test in the mountain range in 1998, secured Khan's place in history. Pakistan became the first Islamic nation to have the bomb. But six years later, Khan suffered disgrace. He had sold Pakistan's nuclear secrets to North Korea, Iran, and Libya. Khan was put under house arrest.

DR. A.Q. KHAN: I take full responsibility for my actions and seek your pardon.

MUSHARRAF (through translator): He has made some mistakes. He's a human being like us. This is a reality.

ROBERTSON: Khan is living proof that Pakistan's relationship with the U.S. is far more complicated than just the war on terror. Pakistan's justification for building the bomb was simple. Archenemy India got there first.

In the past 60 years, the two nations have fought 3 wars. And have come to the brink on several other occasions; almost always over the disputed region of Kashmir.

ABBAS: Acquiring nuclear weapon was all about India. Of course, in the initial years, it was scoring an Islamic bomb to get money from Libya. To get money from Saudi Arabia. To get it financed.

ROBERTSON: Musharraf has blocked the United States from directly questioning Khan about his secret dealings. This, at a time when knowing the truth about Iran and North Korea's nuclear capability has never been more important. It suggests Musharraf has something to hide.

MUSHARRAF: This is a sovereign country. Nobody -- no document will be given. No independent investigation will take place here. And we will not submit to any United Nations coming inside here.

ROBERTSON: But it's how Pakistan wages its daily struggle with India, in the disputed border region of Kashmir that levels the sharpest criticism of Musharraf. Most Indian casualties are I inflicted by so-called Kashmiri freedom fighters. They are Pakistanis that the United States considers terrorists.

MUSHARRAF: Pakistan's stand is very clear. Whatever is happening in Kashmir, we don't call them terrorisms, certainly. There is a freedom struggle going on.

ROBERTSON: Outspoken journalist, Amir Mir, a critic of Musharraf, has tracked these soldiers and says their allegiance is surprising.

MIR: These are the organizations, are the civilian faces of the Pakistan army, which are being used by the Pakistan army to advance its strategy of agenda in the region.

ROBERTSON: I cannot tell you who this man is. But what I can say so that he is a Pakistani and has spied on Al-Qaeda. There is much we cannot tell you about what put him in the know because his family is still in danger.

He says that not only is the Pakistan army aiding Kashmiri fighters. Elements of it are also helping Al-Qaeda and the Taliban.

You've given information to the I.S.I. Pakistani intelligence services, about the existence of these camps. And what have they done?

UNIDENTIFIED MALE: They are the main people who are training them. ROBERTSON: The Pakistani government is?

UNIDENTIFIED MALE: Yes.

ROBERTSON: Training Al-Qaeda?

UNIDENTIFIED MALE: Yes.

ROBERTSON: How can that happen? The Pakistani government is supposed to be opposed to Al-Qaeda?

UNIDENTIFIED MALE: The retired junior commissioned officers are the main trainers in the camps. Training Chechens, Arabs and some Kashmiris and Afghans.

ROBERTSON: While the Pakistani government vigorously denies the allegations, this video shot in 1998 shows the bond between Al-Qaeda and Pakistan's Kashmiri fighters. They provide the protection for Osama Bin Laden on the very day he declared war on America.

And U.S. military officials have personally told me they know that Al-Qaeda, the Taliban and Kashmiri groups have teamed up.

MIR: Whatever Musharraf is doing, he is taking half-hearted steps.

For journalist Amir Mir, it's no surprise that President Musharraf tolerates this nexus of Islamic fundamentalists.

MIR: General Musharraf, is a fundamentalist jihadi from the core of his heart. He is a product of the Pakistan army, which has a fundamentalist outlook because each and every soldier of Pakistan army is raised to wage jihad; to fight against infidels; against Indians, against Hindus.

ROBERTSON: With the president and the army apparently so tolerant of Muslim extremists, is there any hope of pulling Pakistan back from being Terror Central?

(COMMERCIAL BREAK)

ROBERTSON: It's November 2006 a Sunday evening.

ROBERTSON: Hundreds of Pakistani-Americans have gathered in New York to discuss being Muslim in America. And that's why I have traveled here. But there is concern here; concern by some of their leaders that the next Al-Qaeda attack in the U.S. could come from within this very group, influenced by extremists in Pakistan.

ABBAS: This is immediate concern among the Pakistani-Americans. They know what happened on 7/7 in London. And there's a growing concern that when we send our kids back, just to know their culture and language, we don't know what are the kind of people they will be associated with.

ROBERTSON: For most here, their loyalty to the United States and to Islam, do not conflict. But since 9/11, many feel stigmatized.

UNIDENTIFIED MALE: Why are Muslims in this country being detained for no reason other than they are Muslims? No charges and no fair trial. Please answer that question.

ROBERTSON: As I'm listening to people in this room, it's clear there is a lot of anger. But at the same time, there's also an openness here to discuss the issues.

UNIDENTIFIED MALE: Are we Americans? Are we loyal? Or are we just Muslims?

ROBERTSON: But here in my own country, Britain, the attitude could not be more different. In this London community of Warthomstowe, young radical Muslims of Pakistani descent have gathered to watch videos of Osama Bin Laden, cheering the September 11th attack.

ABU MUHAWEED: 2001, the twin towers. Two buildings came down. 3,000 people died. After that, they went for the Pentagon as well.

ROBERTSON: CNN was allowed to videotape their meeting; members of emerging Islamic radical groups. Incredibly, this meeting was held right next to a community mosque. As they listened to Bin Laden, they debate their own radical views.

MUHAWEED: People here are to blame for the 7th of July, are number one, the British government. No doubt about that. Number two, the British public. The British public are responsible and to blame for what happened on the 7th of July, because they voted for that government.

ROBERTSON: Their vision leaves no room for anything but their own radical view of Islam.

MUHAWEED: Any other way of life, Christianity, Judaism, Buddhism, atheism, communism, all of these ways of life, will not save anybody from hellfire. And they will be punished for this by Allah.

ROBERTSON: We then met with Imam Rabbani (ph) in the mosque next door. And showed him what was being said in the name of Islam. He was shocked.

ROBERTSON: Imam Rabbani is the spiritual leader of this mostly Pakistani community. His message, peace and tolerance.

RABBANI: We're proud to be Muslim. We're proud to be British. How can I say I'm Muslim and not British? My religion is Islam. My country is Britain.

ROBERTSON: The young radicals believe that Rabbani is wrong. MUHAWEED: These are the same people that are supporting the British government and justifying their policies and telling us to obey their laws and to obey manmade law and disobey God. How can they say we do not understand Islam? They are the ones that are fooling us to disobey Allah and obey the Queen.

RABBANI: I say very clearly, they are misguided. They know the basics of Islam. If they knew, they wouldn't say these things.

ROBERTSON: Not long after our visit, police raided several homes in Warthomstowe, after receiving warnings of a plot to hijack and blow up planes headed to the United States. The intelligence tied the suspects to Pakistan. Most of those arrested were British of Pakistani decent.

Some community residents who viewed our tape said one of the men arrested had attended the Al Gora and Savior Sect (ph) meeting that CNN filmed. Both groups are now banned. It's illegal to be a member. Like President Bush, Britain's former Prime Minister, Tony Blair, appealed directly to Pakistani president, Pervez Musharraf, for help in fighting terrorism.

TONY BLAIR, FORMER BRITISH PRIME MINISTER: People say okay, you're fighting this battle. But are you winning it? And what I would say is, we begin to win when we start fighting properly.

ROBERTSON: In Pakistan, in 2006, I sit down with the country's Prime Minister Shuoka Aziz. There are connections.

ROBERTSON: As I discovered, the prime minister did not like being questioned about his country's ties to terrorism. Pakistan appears to have become Al-Qaeda Central.

SHAUKAT AZIZ, PRIME MINISTER OF PAKISTAN: Well, let me say that nothing is further from the truth. Let me just address, one by one, the various issues you've raised. The London bombing, which happened last year, there was no evidence of any involvement of anybody from here.

ROBERTSON: But that's not what British security advisers found. They say a significant number of terror cells in Britain have Pakistani links. Shezad Tanweer and the other 7/7 attackers are just the tip of a deadly iceberg that threatens not just Britain, but the United States, too.

TANWEER: What you have witnessed now is only the beginning.

ROBERTSON: At the end of my journey this summer, reflecting on the U.S. national intelligence estimate's conclusions, that Al-Qaeda has grown stronger and more dangerous in Pakistan, even Pakistanis are asking, in the war on terror, is President Musharraf part of the solution? Or part of the problem?

We have repeatedly asked the president to respond to the reporting in this documentary. But so far, he's declined our requests. ABBAS: After the 9/11, it was a smart policy to support Musharraf. It has some strength to say Musharraf can prove to be an agent of change. That makes sense. In the long run, it is going to be very damaging.

ROBERTSON: In Afghanistan, U.S. and NATO troops are in increasing danger. Worst of all, the battle to keep global jihadists at bay to fight them on their own turf is being lost. Pakistan is increasingly a sanctuary for Islamic radicals intent on attacking the West. Pakistan has become Terror Central.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.voxant.com